Fraud in renewable fuel marker sales was predictable

Many people never would cheat to make easy money. Regulation must account for the people who would and do.

Identifying what people in the latter category see as opportunities is not difficult. To those folks, the mandatory exchange of cash for regulatory contrivance glitters like gold.

A timely example is the renewable identification number. Under the federal Renewable Fuel Standards program, every gallon of mandated fuel produced in the US receives an RIN. Companies obligated to meet volumetric requirements for ethanol and biodiesel can comply by making or blending real fuel or by buying RINs from companies that don’t need them.

The market for RINs makes the renewable fuel program more flexible than it otherwise would be. It also gives crooks a chance to commit fraud.

Crooks, being crooks, have seized the opportunity. The Environmental Protection Agency has taken criminal action against one company and civil actions against two others alleging the issuance of phony RINs. The criminal action produced a conviction.

So what happens to the refiners and blenders who bought an estimated 140 million counterfeit RINs?

They have to pay penalties, which EPA has capped at $350,000. They also have to buy replacement RINs, albeit at discounted prices. EPA says it knows of at least three industry programs under way to help regulated companies avoid buying bogus RINs.

The American Petroleum Institute held a press briefing on Sept. 27 at which it faulted the administration for not addressing the problem sufficiently. A week earlier, a bipartisan group introduced legislation in the House that would make EPA responsible for certifying RIN legitimacy.

Fraud has turned the already troubled Renewable Fuel Standards program into a mess. But the mess was predictable. The fraud was predictable.

Cash in pursuit of numbers allowing their buyers to stay out of trouble is too much for some people to resist.

No one should be surprised by this. And everyone should remember the fiasco the next time anyone in government utters the phrase “cap-and-trade.”